Oxfam and Jubilee call for action as Vulture swoops on Zambia’s cash
An investigation by Oxfam and Jubilee Debt Campaign has exposed how a US company known as a ‘vulture fund’ is trying to make a huge profit from one of the poorest countries in the world. A vulture fund is a company which buys up a country’s ‘bad’ debt at a bargain price and then seeks to make a profit by pursuing it for a vastly inflated figure through the courts.
The Royal courts of Justice in London will today deliver judgement on one such case, a lawsuit launched by Donegal International Ltd, a US-owned company registered in the British Virgin Islands. Donegal, run by US businessman Michael Sheehan, is seeking to make a profit of over US$30 million from Zambia – one of the poorest countries in the world – from a debt it bought in 1999 for less than $3.3 million.
The debt, originally owed to Romania for agricultural machinery and services, was accrued during the cold war. It originally had a face value of $15 million but Donegal is claiming that with unpaid interest and other charges, the debt now amounts to more than $42 million. Zambia has already paid back $2 million which means that even allowing another $3 million for interest, a successful action would leave the company with well over $30 million profit.
By extraordinary coincidence, the amount claimed is almost exactly the sum which Zambia is due to receive this year as a result of the Gleneagles debt deal and is equivalent to six months of Zambia’s health budget – something Michael Sheehan is likely to be aware of through his long experience of working as a debt advisor in poor countries. Indeed Donegal is closely connected to a company called Debt Advisory International of Washington DC.
Trisha Rogers, Director of Jubilee Debt Campaign who, together with Oxfam is campaigning against unjust debts and exploitation of poor countries said: "This is opportunistic profiteering of the worst kind – seeking to extract money from a country which is in desperate need of debt cancellation. If Donegal wins the court action he should return the money to Zambia where it is most needed. They bought this debt when Zambia was just about to have large sums of its debt cancelled and when the Government of Zambia itself was trying to buy back its debt from Romania on highly discounted terms."
Since qualifying for debt relief, Zambia has introduced free primary rural healthcare and announced plans to employ 4,500 nurses and teachers. But one in three children in Zambia still does not go to primary school, nearly 80% do not receive secondary education and the average income is barely $1 a day. If Donegal International succeeds in upholding the claim, Zambia’s plans for poverty reduction will be severely undermined.
Oxfam’s Director of Campaigns, Adrian Lovett, added: "It defies belief that commercial creditors are able to bypass poor countries’ debt cancellation schemes for their own gain. Zambia desperately needs investment in nurses, doctors and teachers. This is an outrageous injustice which could and should be addressed by the international community."
Donegal has already had Zambia’s assets frozen. If the judgement is in the company’s favor those assets may be seized.
Adrian Lovett continued: "Finance ministers can take a stand in protecting countries which are preyed upon in this way. As board members of the IMF, they should use their influence to help devise an internationally binding system of arbitration on debt cancellation which will ensure that commercial creditors can never again profit in this way."
For further information, please contact:
Lysbeth Holdoway on 01865 472 498 or 07721 461 342